Charges hit Reynolds American profit

WilliamSpain

CHICAGO (MarketWatch) -- While its takeover of Brown & Williamson helped Reynolds American push its third-quarter revenue sharply higher, the tobacco company's organic volume was in decline -- and its earnings took a big dive on assorted charges.

Before the start of trading Wednesday, Reynolds
RAI
said that it earned $213 million, or $1.44 a share, down from $339 million, or $2.66 a share in the same period a year ago. The latest quarter figures include some $127 million in charges related to tobacco grower buyout programs.

Revenue came in at $2.15 billion, up 15.2%, primarily reflecting the addition of the B&W brands, along with higher cigarette prices.

The average estimates of analysts polled by Thomson First Call had been for earnings of $2.02 a share on revenue of $2.07 billion; backing out various charges, Reynolds would have earned $2.13 a share.

Total domestic volume rose 8.2% to 28.8 billion smokes. However, on a pro forma basis -- as if the merger had been complete as of January 2004 -- domestic volume slumped 3%, setting a 5.7% decline thus far this year. And the company said it now expects a full-year 2005 volume decline in line with that year-to-date performance.

On the same basis, the company's third-quarter share of U.S. retail cigarette business slumped more than 1 point to 29.66%. Reynolds said it had focused its resources largely on "investment brands Camel and Kool [and] these brands' growth partially offset declines on the company's selective support and non-support brands."

Meanwhile, the company revised its 2005 earnings forecast to $6.35 to $6.55 a share, while analysts are projecting earnings of $7.14 a share.

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